Imperial Holdings Sunk by Federal Probe

NEW YORK ( TheStreet) -- Imperial Holdings ( IFT) lost well more than half of its market capitalization Wednesday as investors crowded the exits in the wake of a raid of the company's offices by federal authorities.

Imperial further disclosed that both the company and certain employees, including its chairman and CEO Antony Mitchell, are being investigated by the District of New Hampshire, and that the probe relates to its life finance business. Perhaps coincidentally, the "How it Works" section for the company's life finance business on its Web site is currently listed as Under Construction.

The stock was recently trading at $2.38, down 62%, on volume of 5.7 million, far beyond the issue's trailing three-month daily average churn of around 130,000. Earlier in the session, the shares sank as low as $1.55. At current levels, the company's market cap is a little more than $50 million. Based on the stock's 50-day moving average of $7.27, Imperial's market cap was roughly $150 million.

"Today's action comes as a complete surprise," said CEO Mitchell in the company's prepared statement. "We are not aware of any wrongdoing and will cooperate fully with all relevant authorities to assist them in their investigation."

Imperial went public in February, pricing 16.7 million shares at $10.75 each, below its original expected range of $14 to $16. On Aug. 11, the company reported a fiscal second-quarter profit of $12.6 million, or 59 cents a share, on revenue of $29.2 million, up from a loss of $2.1 million on revenue of $20.6 million in the same period a year earlier. Imperial attributed the higher revenue to "an increase in fair value of life settlements," a line item that came in at $17.7 million.

Two of the firms that underwrote the company's IPO backed away from the mess on Wednesday. JMP Securities suspended its rating and coverage of Imperial's stock, citing "a lack of information surrounding an FBI investigation inhibits our ability to adequately analyze the stock." Wunderlich Securities downgraded the shares to hold and suspended its $16 price target, also pointing to the uncertainty suddenly engulfing the company.

JMP, which sponsored a conference on Monday in New York where Mitchell made a presentation, said it hadn't been able to get any information from Imperial in its comments on the suspension of coverage.

"While we have placed calls into the company, we have not been able to communicate with management following this event," the firm wrote. "In light of the fact that we have no information concerning the purpose or scope of the investigation (i.e., we have no information as to whether it is company or individual specific), we do not have sufficient information to analyze the impact of this event on the stock or the operation of the business."

The other firm involved in underwriting the company's IPO was FBR Capital, which Reuters reported has downgraded the stock to market perform from outperform and cut its price target to $6.20.

In materials related to Monday's presentation posted on its Web site, Imperial includes a flow chart illustrating how its life finance unit works -- basically showing the company looks to provide either a "premium finance loan" or "life settlement" to high net-worth seniors who express a desire to their life insurance agents to either sell or borrow against their policies.

Among the reasons the company lists for seniors to seek liquidity are to finance another "better-suited" insurance product, insufficient retirement savings, and medical expenses. Another illustrative chart in the presentation estimates "118 lives = $565 million in total aggregate death benefits."

In its press release late Tuesday, Imperial said it's hired law firm Greenburg Traurig, and noted that there's been no action taken against its structured settlement business.